Traditionally, experimental economics uses controlled and incentivized field and lab experiments to analyze economic behavior. However, investigating peer effects in the classic settings is challenging due to the reflection problem: Who is influencing whom?

To overcome this, we enlarge the methodological toolbox of these experiments by means of Virtual Reality. After introducing and validating a real-effort sorting task, we embed a virtual agent as peer of a human subject, who independently performs an identical sorting task. We conducted two experiments investigating (a) the subject’s productivity adjustment due to peer effects and (b) the incentive effects on competition. Our results indicate a great potential for Virtual-Reality-based economic experiments.